Underpayment of tax

RG2015

molerat said:

RG2015 said:

I thought I understood this but am now questioning if I do.

I see the process as follows but I happy to be corrected.

Company pension   £20,000
State pension            £9,000
Total.                        £29,000
Personal allowance £13,830
Taxable income.      £15,170
Tax at 20%.               £3,034

It works out the same but the actual process is

Personal allowance £12,570

State pension            £9,000
Tax Allowance            £3,570

Company pension   £20,000

Tax Allowance            £3,570

Taxable income.      £16,430
Tax at 20%.                £3,286

Spouse Transfer           £252

Tax  Due                     £3,034

Thank you. I have to say that the way it is presented by HMRC is slightly different.

How your tax-free amount is calculated

Personal Allowance                                                               £12,570

Additions

Marriage Allowance received from spouse/civil partner         £1,260

Total additions                                                                        £1,260

Deductions

Underpayment from previous year

You underpaid £22 tax in a previous tax year                            £113

State Pension                                                                          £9,631

Total deductions                                                                      £9,744

Your total tax-free amount                                                       £4,086

This gives a tax code of 408M which is then applied to my company pension.

sheramber

RG2015 said:

sheramber said:

If you received your state pension from April but your code was not changed until July , then you would not have paid tax on it from April to July. In that case you would have an underpayment for those months in 22/23. Your amended code would only result in the increased tax amount being collected once your pension payer operated the new code. If there was a delay in that happening then there would be a month/ months delay in collecting the correct amount of tax. HMRC would estimate the underpayment but would not know the exact amount until they finalised the pay and tax once they received the end of year figures from your pension payers. Any additional underpayment would be carried forward to 23/24. Code numbers are only an estimate. The final position is calculated after the end of the tax year. 

Yes, this is what happened.

My point is that all of the figures were known in January 2022. I was able to work out the exact amount of tax I needed to pay in 22/23

I guess it is just the curious method used by HMRC that resulted in an underpayment for 22/23 that will only end up being collected in 24/25.

But HMRC may not have  had notification of   the figure from DWP.

RG2015

sheramber said:

RG2015 said:

sheramber said:

If you received your state pension from April but your code was not changed until July , then you would not have paid tax on it from April to July. In that case you would have an underpayment for those months in 22/23. Your amended code would only result in the increased tax amount being collected once your pension payer operated the new code. If there was a delay in that happening then there would be a month/ months delay in collecting the correct amount of tax. HMRC would estimate the underpayment but would not know the exact amount until they finalised the pay and tax once they received the end of year figures from your pension payers. Any additional underpayment would be carried forward to 23/24. Code numbers are only an estimate. The final position is calculated after the end of the tax year. 

Yes, this is what happened.

My point is that all of the figures were known in January 2022. I was able to work out the exact amount of tax I needed to pay in 22/23

I guess it is just the curious method used by HMRC that resulted in an underpayment for 22/23 that will only end up being collected in 24/25.

But HMRC may not have  had notification of   the figure from DWP.

I knew the correct figures in January 2022 because DWP told me in a letter.

HMRC changed my tax code in July so that is when DWP must have given them the correct figures.

All I am saying is from receiving the figures in July 2022 it has taken HMRC 14 to 15 months to apply them to me correctly.

Not exactly the picture of efficiency.

molerat

With my case the code was promptly adjusted for the tax to be taken over 5 payments but due to early month payment dates there were only 4 paydays left in the year leading to an underpayment.

RG2015

molerat said:

With my case the code was promptly adjusted for the tax to be taken over 5 payments but due to early month payment dates there were only 4 paydays left in the year leading to an underpayment.

I wonder if HMRC intentionally err on the side of caution to avoid people paying too much tax too early.